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Refinancing Second Mortgages
Refinancing a Second Mortgage
For individuals that have two mortgages, there may be advantages
to refinancing a second mortgage. If you're one of these
individuals and are considering refinancing a second mortgage,
there may be good reason for it.
Reasons for Refinancing a Second Mortgage
1. Your credit scores are higher. If your credit scores have
gone up since you previously obtained your loan, it may be an
enormous benefit to consdier refinancing a second mortgage.
Higher credit scores can lead to lower interest rates, which in
turn lead to lower payments or even a shorter payoff term.
2. You need the added funds for a business purchase or expense.
If you find that your business could use some improvement,
whether through the purchase of equipment or improvements in
other areas, refinancing a second mortgage can offer funds
needed in these areas, often at a lower interest rate than a
business loan or signature loan.
3. You've generated some high interest bills. If you've had
emergency purchases that you've needed to make using credit
cards, chances are that the interest rates are very high. It may
be wise to consider refinancing a second mortgage in order to
pay off these bills. The payment term will be shorter, the
interest rate lower, and the interest paid could be tax
deductible.
If refinancing a second mortgage is in your future, consider the
advantages and disadvantages of refinancing.
Advantages of Refinancing a Second Mortgage
1. Interest rates have decreased. Lower interest rates may have
become effective since you initially obtained your second
mortgage. Refinancing a second mortgage could mean locking into
lower interest rates, and ultimately, can offer lower monthly
payments.
2. Funds are needed to pay off bills or make a business
purchases. If you find that you could use money to pay off high
interest bills or make a business purchase, for example,
refinancing a second mortgage can offer some excellent options.
By reviewing the equity added into your home or property since
the second mortgage was originally financed, your lender will be
able to determine how much money you can obtain by refinancing a
second mortgage. A home appraisal will be required for this to
happen, but the benefit can be a huge advantage.
3. Interest payments may be tax deductible. Consult with your
financial institution or tax preparation specialist to verify,
but in many instances, interest paid through refinancing a
second mortgage may be tax deductible.
Disadvantages of Refinancing a Second Mortgage
1. Interest rates may be higher. If you obtained your second
mortgage while rates were at an all-time low, refinancing a
second mortgage could mean that your interest rates will
increase by two percent or more.
2. Payments may be higher. If you cash out on equity that has
increased in your home or property since you initially signed
for your second mortgage, refinancing a second mortgage will
obviously mean higher monthly payments. Consider the other
factors involved, though. If the cash will be used to pay off
high interest bills, or if it will be used to purchase
much-needed business equipment, the added payment may be of
larger benefit than if the refinancing did not occur.
Be Prepared When Refinancing a Second Mortgage
Proper preparation is your best bet in refinancing a second
mortgage. Refinancing a second mortgage can be advantageous, or
it can be of harm to your budget, depending on the
circumstances. Use careful consideration in refinancing a second
mortgage.
Since credit scores can be lowered if your reports are requested
by too many lenders, do your homework prior to contacting
lenders. Request your credit reports from the three credit
reporting agencies: Equifax, Transunion, and Experian. Be aware
of your credit scores, and let potential lenders know what your
scores are prior to requesting their interest rates or
application.
Do not provide your social security number or tax identification
number until you have informed the lender of your credit scores
and have their interest rates. Shop around with different
lenders to find out what rates they currently offer for
refinancing a second mortgage. Once you have this information
from several lenders, and understand their terms for repayment,
choose the lender that best suits your needs.
Consider all factors, including the loan amount and the interest
rate, and choose a lender that does not offer a penalty for
early payoff. At that point, it's safe to move forward and
request an application from the lender best suited for you.
About the author:
Rebecca Game is the founder of Digital Women ®, an online
community for women in business. A 30 year entrepreneur and
dedicated to helping other women. Visit her site: Loans for
Women
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